EAGER: Preserving Privacy in the Use of Digital Currencies

Massachusetts Institute Of Technology, Cambridge MA

Investigators

Abstract

The broader impact/commercial potential of this EAGER project will be on the $3 trillion digital asset market. The project will consider whether new technologies can afford a consumer or business greater privacy in a digital currency payment in order to support the development of this rapidly growing market. The proosed work includes core software and infrastructure development that balances users’ preferences with regulatory requirements and strives to build a more efficient digital payment system. Through collaborative, multi-disciplinary technical research, the project will evaluate digital currency design choices under different assumptions and requirements, evaluate tradeoffs, and ultimately learn how digital currency systems can be designed to best advance privacy, user agency, innovation, and financial equity. The latter objective includes improved financial access for low income and other vulnerable populations, an important global challenge. Because the project intends to release research papers and code, this work may catalyze others’ efforts in the public and private sectors to build on our research. This work will thereby provide critical insight for central bankers, policymakers, and the financial services industry as they contemplate the design and potential issuance of digital assets for use in the economy. This EAGER project proposes to preserve privacy in the use of a central bank digital currency (CBDC). The project will estimate the speed and storage implications of cryptographic approaches including pseudonymization, zero-knowledge proofs, and private information retrieval, to limit the information that each provider sees about participants in a transaction while complying with regulation. The test platform will be on OpenCBDC, a payments model in which the central transaction processor authenticates and stores unspent funds (called unspent transaction outputs, or UTXO) as cryptographic hashes. The project will address one of the most latency-intensive parts of a privacy-preserving design, namely range proof verification, using two architectures. One is batch proof creation, in which the prover must show that multiple values fall below a specified range. The second is batch proof verification, in which the verifier considers whether multiple proofs are all valid. This project presents high risks because it is unknown whether this technology can safeguard privacy adequately, at scale, and in a manner that is sensitive to legal, regulatory, and political concerns. It presents potentially high returns because demonstrating that well designed digital money can safeguard privacy at a level similar to cash could influence the design of payments instruments for decades. This award reflects NSF's statutory mission and has been deemed worthy of support through evaluation using the Foundation's intellectual merit and broader impacts review criteria.